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InvisibleTODAY
Battletoad
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Registered: 09/25/03
Posts: 10,218
Loc: Metropolis City, USA
Accounting help
    #8812740 - 08/22/08 09:27 PM (10 years, 28 days ago)

Yo.

I'm starting a biz soon and am constructing a super fancy pants balance sheet and income statement in Excel.  My first owner's equity entry is $10,000 which will post in a business checking account thereby increasing that asset by $10,000.

Assets = Equity + Liability.  Balanced.  Sweet.

Now...I am signing a rental agreement with my landlord which will increase my current rent liability account to $6,6750.  I am having difficulty with the corresponding entry that will make my Assets = Equity + Liability.  Right now it looks like 10,000 = 3,250.  What am I missing?


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ca'rouse (k-rouz)
intr.v.
To engage in boisterous, drunken merrymaking.


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InvisibleVeritas
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Re: Accounting help [Re: TODAY]
    #8813491 - 08/23/08 12:32 AM (10 years, 28 days ago)

You're missing the calculation of Owner's Equity.  If you use the same equation to solve for Equity, you would calculate:

Equity = Assets - Liability.

or

Equity = $10,000 - $6,750

Equity = $3,250

Thus, on one side of your balance sheet your assets would total $10,000, and on the other side your liabilities ($3,250) plus your Owner's Equity ($6,750) would equal $10,000.


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InvisibleTODAY
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Re: Accounting help [Re: Veritas]
    #8819710 - 08/24/08 01:20 PM (10 years, 27 days ago)

What would you call this account and how would it be treated?  Every time I pay rent my cash asset will be reduced and the current rent liability will reduce accordingly, but the equity entry will just sit there untouched. 


--------------------

ca'rouse (k-rouz)
intr.v.
To engage in boisterous, drunken merrymaking.


Edited by TODAY (08/24/08 04:34 PM)


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InvisibleVeritas
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Re: Accounting help [Re: TODAY]
    #8821068 - 08/24/08 06:44 PM (10 years, 26 days ago)

If you are a sole proprietorship, call this account "Owner's Equity."  It will always be assets - liability.


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Invisiblejohnm214
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Re: Accounting help [Re: Veritas]
    #8822952 - 08/25/08 02:31 AM (10 years, 26 days ago)

Quote:

Veritas said:
If you are a sole proprietorship, call this account "Owner's Equity."  It will always be assets - liability.





sure, but what equity?  He said he rents, right?  So he has no rights to the property anyways beyond the right to occupancy.


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InvisibleVeritas
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Re: Accounting help [Re: johnm214]
    #8823769 - 08/25/08 10:59 AM (10 years, 26 days ago)

Owner's Equity is the net value of the business.  A sole proprietor "owns" 100% of the assets and owes 100% of the debts of his/her business.  Currently, the only asset is the cash he has deposited into the business checking account & the only liability is the rental contract.  As he accumulates other assets, such as business property, along with any associated liabilities, the balance sheet will become more complex.


Edited by Veritas (08/25/08 12:24 PM)


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Offlinenugjug
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Re: Accounting help [Re: Veritas]
    #8839653 - 08/28/08 02:20 AM (10 years, 23 days ago)

Assets = Liablities + Owners Equity (stock holders equity)


August 28, 2008
10,000 in the Cash (assets)account = 0 + 10,000 (owners equity, initial start up money)

Debit Rent Expense for $6,750.  Expenses deduct from Owners Equity.  $10,000 - 6,750 = $3,250.

Credit Rent Liability for $6,750.

Equation balanced.

Rent Paid
September 1, 2008
Credit cash for $6,750.  Cash = $10,000-6,750 = $3,250.

Credit Rent Expense for $6,750.  Rent Expense is now $0.

Asset = Liabilities + Owner's Equity
Cash  =                    + Owner's Equity
$3,250=      0          + $3,250

Equation balanced.


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